New York Sues A.I.G. and 2 Ex-Executives

By JENNY ANDERSON

Published: May 27, 2005

After months of allegations and intrigue, the first legal blow fell upon the insurance giant American International Group yesterday, as New York regulators sued the company and its former top two officers, accusing them of manipulating financial statements and misleading regulators and investors.

The complaint, filed in State Supreme Court in Manhattan by the New York attorney general and the New York insurance superintendent, details various transactions initiated or overseen by the former chief executive, Maurice R. Greenberg, that were intended to make the underwriting business look stronger than it was. The complaint also names the former chief financial officer, Howard I. Smith.

The transactions, the complaint contends, allowed A.I.G. to cover up problems like faltering reserves and underwriting losses in dealings from Taiwan to Brazil.

While the outlines of various suspected schemes have been previously disclosed, the complaint -- and the e-mail messages and corporate documents that accompanied its release -- portray a chief executive intimately involved in nearly every aspect of his business, even at a huge global corporation that reported $100 billion in revenue in 2004.

Mr. Greenberg is portrayed as obsessed with the daily movement of A.I.G. stock, calling his company's trading desk from his private jet to urge a trader to buy more shares. He was also focused on the public image of A.I.G., writing in a memo of his unease about entering the business of buying life insurance policies from the terminally ill or elderly, ''It seems to me that anybody doing in the field stands the risk of adverse PR.'' (A.I.G. did enter the business; the complaint accuses it of falsely reporting the income from it.)

And when a new general counsel joined A.I.G. in the early 1990's and found out that the company was failing to make certain payments required for insurance companies selling workers' compensation, he was told by another employee that Mr. Greenberg ''did not want him to change things to make it legal he wants to continue it,'' according to the complaint.

In another instance cited in the complaint, a senior A.I.G. employee explained to Mr. Greenberg and Mr. Smith how he would arrange a transaction to convert underwriting losses into less noticed investment losses. ''Our objective was to convert an underwriting loss into a capital loss,'' the memo from April 20, 2000, said. When the employee got the transaction approved, Mr. Greenberg dispatched the employee to Switzerland to find investors to participate in the deal, the complaint says.

While the various transactions outlined in the complaint did not erase losses, they shifted them around in a way that would be more palatable to investors watching the results and state regulators trying to monitor the movement of money in complex insurance companies.

The motive they assign to Mr. Greenberg is a fierce focus on the company's stock price, leading him to ask A.I.G.'s own traders to buy shares even when doing so might have violated trading rules. While the lawsuit details a 2000 transaction with General Re that A.I.G. has acknowledged was improper, the lawsuit does not name any General Re officials.

Analysts say A.I.G. will seek to move quickly to settle with New York regulators. Shares of A.I.G. rose 3 percent yesterday, to $55.71. The stock, however, is down 26 percent since the company disclosed on Feb. 14 that it had received subpoenas from Eliot Spitzer, the New York attorney general, and the Securities and Exchange Commission.

Mr. Spitzer's investigation into A.I.G. is continuing. And the company is still being investigated by the S.E.C. and the Justice Department.

Already the company has acknowledged the bulk of the problems outlined in the complaint, saying adjusting them will lower the company's net worth by $2.7 billion, or 3.3 percent. A.I.G. plans to file its annual report with the S.E.C. by Tuesday.

''We have been cooperating and will continue to cooperate with the attorney general, the superintendent, and other regulatory agencies on all these matters,'' Chris Winans, a spokesman for A.I.G., said in a statement, adding that there were no new claims raised in the complaint.

The fate of Mr. Greenberg is less clear. A state grand jury in Manhattan is weighing possible charges against individuals.

''For Mr. Greenberg, this is not just business, it's personal, it goes to the heart of his legacy and reputation,'' said Robert A. Mintz, a former federal prosecutor and head of the white-collar defense practice at McCarter & English. ''Once again he is hamstrung in defending himself in the civil case because of the looming prospect of a criminal prosecution.''

Among the allegations in Mr. Spitzer's complaint are that Mr. Greenberg was told about possible violations of state and federal law in the way the company handled workers' compensation insurance and did nothing about it; that Mr. Greenberg initiated a transaction to inflate artificially A.I.G.'s reserves; and that the company lied repeatedly to state insurance regulators about A.I.G.'s control of certain entities.